Don’t Stock Markets Always Crash?!

Tuesday 16 March 2021

Here are 3 key concepts, 2 key resources, and 1 key action, to help you understand that markets do crash, but it’s not the end of the world.

“The stock market is too risky – it always crashes!”

This is a common excuse we hear from beginner investors, as an excuse not to get started. And fair enough. Yes, there are famous stories of market crashes, BUT over time the stock market continues grinding upwards.

Next time you hear someone say stocks always crash, here are a few tips you can tell them:

  1. Between 1900 and 2018, the Australian share market had 23 years where it went down and 96 years where it went up. So 81% of the years were good years! You can’t complain about that. 
  2. Markets have crashed and then recovered. They will continue to crash and recover. Fear of a crash shouldn’t stop you from investing because it’ll stop you from enjoying the awesome wealth-creating power of the market as well. 
  3. The reason the market recovers is that companies continue to get more productive, more innovative and more valuable over time. Individual companies will go bankrupt, technology will disrupt industries, but overall the market as a whole continues marching upwards.

It’s not just that the stock market recovers from these crashes. Throughout history, time and time again, the stock market recovers from its fall and then keeps growing.

  1. This chart of the US stock market demonstrates so clearly what we’re talking about. You can see over the last 100 years, there have been market crashes (1929, 1987, 2001, 2008, 2018, 2020). But look – it has recovered each and every time!
  2. Our major lessons about stock market crashes:
    1. Stock market crashes will happen, they are a fact of life
    2. Don’t try and time the market and predict a crash, you miss out on gains and cause unnecessary stress
    3. When a crash happens, the worst thing you can do is sell. It’s too late and you’ll often miss out on the recovery. Focus on the long-term!
    4. Crashes have been great buying opportunities 

The main action here is to remind yourself that markets do crash BUT they do recover. So next time a crash comes around, don’t panic sell. Keep focus on the long-term, pull out the chart above and think about the bigger picture.

Now you can be the one to tell someone where to go if they’re complaining the stock market always crashes.

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